Maximilien Lambertson: Global Forecasts and the Untapped Trade Potential of the Western Balkans

Exclusive Interview with Maximilien Lambertson – Lead Analyst on Easter Europe at the Economist Intelligence Unit and Speaker at the Upcoming Macedonia2025 Summit

Mr. Lambertson, as a lead analyst on Easter Europe at the Economist Intelligence Unit, can you tell us something more about the economic forecasts by region? According to statistics, which country marks the highest growth and development in Europe and the world? Which ones are the most developed countries in Southeast Europe?

In our 2018-22 forecast period, we expect to see the fastest economic growth in the Asia & Australasia region, where we forecast average annual real GDP growth over 4%. Following Asia, in decreasing order, are Sub-Saharan Africa, Middle East & North Africa, and Latin America. The slowest growing regions are Europe and North America, where we forecast average annual real GDP growth just under 2% in 2018-22.

In south-east Europe the situation is generally improving after a protracted and difficult post-crisis recovery. We expect continued strong real GDP growth in the region’s biggest economy, Romania (which grew by 7% in 2017), of 4% in 2018 and 3.5% per year in 2019-22. Greece recently exited its third bail-out programme this year, but the recovery that got under way in 2017 is fragile and we forecast that real GDP will expand by a modest 1.9% per year on average in 2018-22, following growth of 1.3% in 2017.

Economic activity in the western Balkans has picked up in the past three years. The region has undergone a significant economic adjustment since the global economic crisis in 2007-09, and inflation has fallen to historical lows for the region, allowing a more accommodative monetary policy that has supported growth. On the downside, high public and/or private debt loads remain impediments to faster growth. We forecast average real GDP growth in the western Balkans of about 3.3% in 2018-22.

What are the biggest threats that may derail economic growthforecasts?

The biggest immediate risks to Europe’s growth outlook come from abroad. Although trade tensions between the EU and the US eased in late July following a meeting between Donald Trump, the US president, and Jean-Claude Juncker, the European Commission president, there remains a high risk that talks will break down if Mr. Trump does not view any trade agreement as sufficiently beneficial for the US. An escalation in US protectionism would hit the German economy particularly hard, given its dominant role in the European automotive industry and relative degree of openness (exports equate to almost 50% of Germany’s GDP, compared with about 30% for France and the UK, 20% for China, 17% for Japan and just 12% for the US). If trade conflicts escalate on additional fronts in the coming years, to the extent that global trade could actually decline, this would have major knock-on effects for inflation, business sentiment, consumer sentiment and, ultimately, global economic growth.

A disorderly Brexit is also a major cause for concern, although our core forecast continues to be that the EU and the UK will reach a deal by the time of the UK’s formal withdrawal from the block on March 29th 2019. However, the risk of a “no-deal” Brexit will persist throughout the ratification process and has increased since June, as divisions within the UK parliament over the proposed plan of the British Prime Minister, Theresa May, have threatened to derail the necessary legislative progress.

Are we currently facing a state of global crisis? What do you expect to happen on the global market in 2019?

The are many risks clouding the global outlook for 2019, including the direction of US trade policy, the tightening of global monetary conditions, China’s financial vulnerabilities, deepening tensions in the Middle East and fears about the potential for an emerging-market crisis. Owing to one or several of these risks materializing, we expect global real GDP growth to slow from 3% in 2018 to 2.8% in 2019. While we expect that a full-blown emerging-market crisis should be averted for now, we do expect the number of countries whose currencies will come under pressure to rise. It is likely that there will be periods of volatility as a number of these key risks interact in challenging ways for emerging markets.

In November you will be speaking at the Macedonia2025 Summit in Skopje. In your opinion, which industry should Macedonia focus on, in order to achieve greater economic development? What is more, how do you rank Macedonian cities in the livability index?

Over the past decade, Macedonia has sought to attract foreign direct investment (FDI) to modernize and diversify the country’s merchandise export base. This boosted Macedonia’s exports of chemicals, machinery and transport equipment, which along with iron, steel and textiles account for the majority of merchandise exports. In the future, similar to many of its neighbors, Macedonia could boost its services exports, by further developing its tourism, IT services and education sectors, increasing the number of high skilled and better paying jobs available to Macedonians and creating spillover demand for the construction, retail and wholesale trade sectors.

At the Macedonia2025 Summit, you will be talking at the panel titled “Developments in SEE – Investments, Trade and Prospects”. Can you tell us something more about this and what are your expectations from the event?

I look forward to discussing the potential for southeastern Europe to boost its investment profile and regional trade. EIU analysis has found that the western Balkans trade seriously below potential—exports of goods and services are almost 40% below estimated potential exports on average. Albania, Bosnia and Herzegovina, Macedonia and Serbia depend on the EU for 60‑70% of their exports, while intra-regional trade accounts for only 10% of total trade. Reasons for this include transport infrastructure deficiencies; sub-optimal trade policies in most countries; and non-tariff barriers to trade. Boosting investment in infrastructure is a key part of this issue. Better transportation, energy and telecommunications networks would help western Balkan countries to increase productivity, deepen their trade integration and improve their attractiveness for foreign investment. I look forward to discussing with other participants the potential for the region to address these challenges.